Chapter 3
Investor-originated life insurance (or IOLI), sometimes called stranger-originated life insurance (or STOLI)
is used to circumvent state insurable interest statutes. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insure
a contract of adhesion,
any confusing language would be interpreted in the favor of the insured.
Under a unilateral insurance policy,
the insurance company makes the legally enforceable promises.
Chapter 3
Limited Pay life:
As the premium payment period shortens, cash values increase
faster
Which policy requires a producer to register with the National Association of Securities Dealers (NASD) before selling?
Variable Life". Because of the transfer of investment risk from the insurer to the policyowner, variable insurance products are considered securities contracts as well as insurance contracts.
A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as
The cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio.
What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?
Decreasing term". A decreasing term policy has a death benefit that adjusts periodically and is written for a specific period of time.
What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?
The correct answer is "Family Maintenance Policy". A policy that provides an income for a specific period starting at the death of the insured is a Family Maintenance Policy
When is the face amount paid under a Joint Life and Survivor policy?
upon death of the last insured". A Joint Life and Survivor policy pays benefits after the death of the last insured.
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Correct. Variable Universal Life is comprised of monthly mortality charges and self directed investment choices.
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
Correct answer is "$20,000 death benefit". If the insured dies before the endowment's maturity, the policy's face value � also known as the "death benefit" � is paid in a lump sum to any beneficiaries.
Which type of policy is considered to be overfunded, as stated by IRS guidelines?
Modified Endowment Contract". A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract.
Which of these statements describe a Modified Endowment Contract (MEC)?
Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract". Policies that do not meet the 7-pay test are considered MEC's and will lose favorable tax treatment. The test is designed to
All of these insurance products require a producer to have proper FINRA securities registration in order to sell them EXCEPT for
Modified Whole Life". A producer must have proper FINRA securities registration to sell all of these products EXCEPT Modified Whole Life.
The investment gains from a Universal Life Policy usually go toward
the cash value". In a Universal Life Policy, income is usually directed toward the cash value
D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed
Level term". Life insurance written to cover a need for a specified period of time at the lowest premium is called level term insurance.
Which is true concerning a Variable Universal Life policy?
Policyowner directs where the investment will go and selects the amount of the premium payment". With Variable Universal Life, the policyowner controls the investment of cash values and chooses the timing and amount of premium payments.
What type of life insurance are credit policies issued as?
Term". The type of insurance used is decreasing term, with the term matched to the length of the loan period (though usually limited to 10 years or less) and the decreasing insurance amount matched to the declining loan balance
Chapter 3 Pt 2
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself
The correct answer is "Entire contract provision". The entire contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contr
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued". In a policy with a rear-end loaded provision, surrender charges are deducted when the policy is discontinued.
What does the ownership clause in a life insurance policy state?
Who the policyowner is and what rights the policyowner is entitled to". The ownership clause in a life insurance policy is a provision that indicates who is the policyowner and provides a general description of the owner's rights.
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period
Full face amount minus any past due premiums". If an insured dies during the Grace Period of a life insurance policy before paying the required premium, the beneficiary will receive the face amount of the policy less any past due premiums.
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Decreasing Term". The Automatic Premium Loan provision can be incorporated into all of these policies EXCEPT decreasing term.
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?
Entire contract provision". The entire contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. Nothing may be "i
How are policyowner dividends treated in regards to income tax
Interest on accumulations is taxed". If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income
ow are surrender charges deducted in a life policy with a rear-end loaded provision
Deducted when the policy is discontinued". In a policy with a rear-end loaded provision, surrender charges are deducted when the policy is discontinued.
The incontestable clause allows an insurer to
contest a claim during the contestable period". The incontestable clause or provision specifies that after a certain period of time (usually two years from the issue date), the insurer no longer has the right to contest the validity of the life insurance
Which of these life insurance riders allows the applicant to have excess coverage?
Term rider". Term riders allow an applicant to have excess life insurance coverage
A policy loan is made possible by which of these life insurance policy features?
Cash value provision". The Cash value provision makes a policy loan possible.
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance". Unpaid interest from a policy loan is added to the loan balance if not paid by the due date
What action can a policyowner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank". A policyowner may assign ownership of the policy to a bank as collateral.
Chapter 4
Which statement is true regarding a minor beneficiary?
Normally, a guardian is required to be appointed in the Beneficiary clause of the contract". In most cases, insurers require that a guardian be appointed in the Beneficiary clause of the policy or that a guardian be designated in the will
A policyowner is allowed to pay premiums more than once a year under which provision?
Mode of Premium". The Mode of Premium provision permits an insured to pay premiums more than once every year.
Chapter 5
K applies for a life insurance policy on herself and submits the initial premium with the application. She is given a receipt by the producer stating that coverage begins immediately if the application is approved. What kind of receipt was used?
Conditional". A conditional receipt indicates that certain conditions must be met in order for the insurance coverage to go into effect.
P is a producer who notices 5 questions on a life application were not answered. What actions should P take?
Set up a meeting with the applicant to answer the remaining questions". In this situation, the producer should schedule another appointment with the applicant to complete the unanswered questions.
What is the purpose of the U.S.A. Patriot Act?
detect and deter terrorism". The purpose of the U.S.A. Patriot Act is to detect and deter terrorism.
An underwriter determines that an applicant's risk should be recategorized due to a health issue. This policy may be issued with a(n)
exclusion for the medical condition". In this situation, the policy may be issued with an exclusion for the medical problem.
An incomplete life insurance application submitted to an insurer will result in which of these actions?
Application will be returned to the writing agent". If the company discovers a mistake or incompletion, it usually returns the application to the producer.
How does an indexed annuity differ from a fixed annuity?
Indexed annuity owners receive credited interest tied to the fluctuations of the linked index". An indexed annuity differs from a fixed annuity in that indexed annuity owners receive credited interest tied to the fluctuations of the linked index.
Which plan is intended to be used by a sole proprietor and the employees of that business?
Keogh Plan". A Keogh Plan may be used by a sole proprietor only if the employees of the business are included.
CHapter 10
Which statement regarding third-party ownership of a life insurance policy is true?
It is used extensively in estate-planning as well as business circumstances". Third-party ownership of a life insurance policy is widely used in business settings and estate-planning situations.
A variable life insurance agent must be licensed and appointed as a life and variable contract agent, as well as a(n)
...
A life policy loan in Florida cannot charge a fixed rate of interest higher than
10%
The minimum age at which a person can sign a life insurance application is
15
Which of the following is a standard provision of the conversion privileges in a Group Life policy?
Group Life coverage can be converted to an individual policy at regular rates on an attained-age basis". Conversion at regular rates on an attained-age basis without a medical exam is a standard provision for conversion privileges in Group Life policies.
Which of the following areas of state regulation is NOT protected by the savings clause in ERISA?
Commerce". All of these areas of state regulation are protected by the savings clause in ERISA EXCEPT for commerc
Final Exam
In Florida, when agents recommend changes be made for existing coverage, the agent must follow established procedures. The name of this rule is called the
Florida Replacement Rule". The Florida Replacement Rule sets forth the requirements and procedures to be followed by insurance companies and producers when replacing existing life insurance contracts.
Under Florida law, a variable annuity policyowner must be notified of the accumulated value of the contract
once each year". A variable annuity policyholder must be informed at least once each year of the accumulated value of the contract during the premium payment period.
Which of these is NOT a legal entity for selling life insurance in Florida?
Risk management advisers". Risk management advisers do not qualify as a legal entity for selling life insurance.
What are adjustable rates for life policy loans in Florida based on?
Moody's corporate bond index". Adjustable rates for life insurance policy loans in Florida are based on Moody's corporate bond index.
Which of the following is NOT a consequence for placing business with an unauthorized insurer?
First degree misdemeanor". All of these are possible consequences for placing business with an unauthorized insurer EXCEPT the conviction of a first degree misdemeanor.
An applicant who pays the initial premium at the time of application is typically given a(n)
conditional receipt". A conditional receipt is normally given to an applicant who pays the initial premium at the time of application.
All of the following entries are classified under the four principal areas of Florida insurance law EXCEPT
An agent's commission". The payment of commissions to the agents is not classified under the four principal areas of Florida insurance law.
Which of the following is NOT an unfair claim settlement practice?
Needing written documentation of claim details". All of these are unfair claim settlement practices except "Needing written documentation of claim details".
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT
Interest Only
Under Florida law, a variable annuity policyowner must be notified of the accumulated value of the contract
once each year
A variable life insurance agent must be licensed and appointed as a life and variable contract agent, as well as a(n)
broker dealer". An agent marketing variable life insurance must be licensed and appointed as a life and variable contract agent and a broker dealer.
Which entity approves the insurance policy forms used in Florida?
Office of Insurance Regulation (OIR)". The insurance policy forms used in Florida are approved by the Office of Insurance Regulation (OIR).
When replacing or exchanging an annuity, the agent must disclose to the annuitant
he possible tax ramifications as a result of the transaction". An agent must disclose the possible tax consequences of replacing or exchanging an existing annuity or life insurance policy.